123456789 Before placing an order... What points should I bear in mind? Check that the entity you have signed an agreement with for the routing of orders is authorised to provide investment services in Spain. This information can be found in the official registers of the CNMV 3 or of Banco de España in the case of credit entities. Where there is a secondary market for the securities you wish to buy or sell, decide the top or bottom prices respectively at which you are willing to transact. The range of possible orders in each market invariably includes the so-called limit orders, i.e. those specifying a price. Before giving any instructions, consider all the possible costs attached to your order, including the cost of its modification or cancellation, the transaction settlement cost and the custody fee. If the trade involves only a small number of securities and there are fixed commission charges, you may find that these are actually higher than your expected income from the sale. Consult the fee brochure delivered by your provider. Analyse market conditions in general and those of the particular security your order is for; its recent performance, prospects, etc. Read the information published by specialist providers of financial news and analysis, the significant events disseminated by the CNMV, and market price lists or gazettes. In every case, and especially with on-line services, check the chances that you order will go through at the latest prices posted on the market, and the time lag that is reasonable until it is actually entered, depending on the channel. Do not make investment decisions on the basis of purely verbal advice. Make sure the product you are going to buy fits your personal requirements concerning risk level, expected return and liquidity, and get your intermediary to give you all the mandatory information. Before sending in an order, take time to read it through and make sure all the details you want to include are faithfully reflected - price, volume, period of validity, etc. and that you have the securities or cash to meet it. 3 Available on the website (www.cnmv.es). 13
Find out when and under what conditions you can cancel a securities order. This will enable you to respond more effectively in case of need. Trading procedures may not be exactly the same on foreign securities markets. Find out about the way these markets work before you place your order, and how this will affect your tax obligations and the fees you pay. What questions should I ask my intermediary? Fees Financial entities are obliged to state the exact amount charged for a given service, and to offer a rough calculation, on clients request, of the fees attached to a specific transaction. But it is up to you, as the interested party, to ascertain the total cost. You can then decide whether to go ahead or whether it is preferable to wait till later (especially if you plan to transact on a small number of securities, when fixed minimum fees could wipe out your gains). As regards the processing and execution of orders on secondary market securities, remember these are two separate steps which are not necessarily handled by the same entity. One entity may receive and forward your order, then a second one may execute it as a member of the market where the security is traded. The final amount payable, as figuring in the statement sent to your home address after each operation, could be the sum of several, differentiated items: The fees of the entity whose client you are, which charges you for processing the order (processing). The fee corresponding to the market member when other than your broker (execution). The trading, settlement or brokerage fees charged by market governing councils, clearing and settlement services, etc. In the case of a sell order, you will also pay a sum for the custody and administration of the securities transferred, as detailed in each entity s registered fee schedule. Note that some intermediaries offer all-in rates with these cost items included. Spanish law supports the freedom of pricing, so lets entities set their own fees or chargeable expenses for all standard services which are effectively rendered at the client s request. Hence the fees charged for market intermediation and the transfer of securities may vary from one supplier to another. 14
A pre-condition for applying these fees is that they should be notified to the CNMV. Entities must also publish a brochure with the top rates applicable to all standard operations, filed previously in the official registers of the CNMV. No fee may be charged for any standard investment service which does not have a price listed, or which does not figure in this brochure. In other words, entities must be able to produce a brochure entry for every sum or item they claim in payment, and this also holds true for chargeable expenses. Nor can they charge fees higher than the corresponding registered amount. Example 4 : An investor has signed an agreement with the entity X for the administration and custody of securities. By virtue of this agreement, he issues a buy order for 120 shares of the company SOTISA, listed on the stock exchange, at a top price of 15 euros. Entity X is not a market member, so it approaches an entity which is (the broker-dealer Y) for it to fill the client s instructions. Y then executes the order in a single trade. Entity X s fee brochure, as filed with the CNMV, stipulates a fee for equity purchases equal to 0.25% of the effective amount as of a minimum of 6.01 euros, plus the expenses incurred in order execution. In our example, these expenses would be the execution fee of broker-dealer Y, which comes to 0.25% of the effective amount with a minimum of 3 euros, plus the stock exchange trading fee corresponding to a 1,800 euros transaction (2.88 euros) plus the settlement fee of Iberclear (0.05 euros). The total costs assignable to the purchase order can thus be itemised: Fee of entity X (0.25% x 1,800=4.50 ), assuming the 6.01 euro minimum would be applied...6.01 Fee of broker-dealer Y...0.25% x 1,800 = 4.50 Stock exchange trading fee...2.88 Settlement fee...0.05 Total...13.44 4 Assuming the fees applied are the maximum i.e. the registered rates. 15
In the case of certain sell orders, we would also have to add the securities administration and custody fee 5. This is a periodic fee paid to the custodian entity for the servicing, on the client s behalf, of the registration codes 6 accrediting his or her ownership (in the case of bookentry securities) or the safekeeping of physical certificates. All this is extrapolable to any other kind of order involving marketable securities: non-market transactions, change of title, transfer of securities, etc., and the same distinction must be made between fees as such and chargeable expenses, as figuring in the fee brochure. After filing with the CNMV, fee brochures must be available to the public in the head offices and on the branch notice boards of each provider entity. They can also be consulted in the CNMV s official registers and accessed from its website. 7 Investment services firms should also give clients a copy of the fees applicable to their chosen operations along with the corresponding agreement, or else include them directly among its clauses. What is not permissible is a general reference to the fee brochure without its physical delivery. Any changes to fee schedules should be notified to clients, who will have at least two months from receipt of this information to modify or cancel their contractual relationship, during which time the new rates may not be applied. Mutual funds have their own fee schedules, as reflected in the fund rules and prospectus that each must register with the CNMV. Fees for the subscription and redemption of fund units are subject to a legally established ceiling. Nowadays management companies can also modify the fees of a mutual fund in determined cases. First, however, unitholders must be informed and a period stipulated over which they can opt to withdraw from the fund without the new rates being applied. Provision of funds or securities Financial entities must fulfil the orders placed by clients, but can make their execution contingent on the client putting up sufficient cash or securities. This is obligatory, in fact, for brokers, while broker-dealers and credit entities can use some discretion. 5 Investors should read through the fee brochures received to check how often this fee is charged, and whether it is applied to the whole interval or only to the period when securities are actually held (proration). 6 See What are registration codes? in the Frequently Asked Questions section. 7 www.cnmv.es 16
However, market-member credit entities or broker-dealers may engage in intraday margin trading, while a session is still running. What they cannot do is sell on margin at the market close, i.e. without having the relevant securities in their power. In such cases, the sale must be compensated by a buy transaction during the following session, and Iberclear will apply the penalties and sanctions envisaged in current regulations. Another thing entirely is that some ISFs may offer securities lending agreements to their clients. So before you give instructions, check first if your intermediary requires you to provide the funds and/or securities to cover your orders. Which points do I need to specify? For a securities order to be properly processed and filled, it must give clear, precise instructions so the issuer and the receiver are agreed on its scope. This means specifying details like the number and nature of the securities involved, the direction of the order, its execution price (where appropriate), its period of validity, the accounts for the deposit or withdrawal of securities, the associated cash account, the ID of the order principal, and any other information required under the rules of each market, or due to the nature of the channel used. For instance, orders on securities traded in the Spanish market system can state details like a minimum volume for execution, the hiding of all or part of the order volume, etc. Orders on derivative products traded on MEFF must give indications like the exact denomination and the whole number of contracts they refer to, the month of expiry, the exercise price and the premium, in the case of options, or the price of the future. 17